Market Manipulation & The Sicilian Code

Criminal enterprises the world over are tied together by a particular conduct so endemic to organized crime that it might accurately be referred to as Mafiosi Best Practices. It is based on the very common-sense principle that one should never, ever leave a paper trail of one’s criminal activity. Any document, from notes at a meeting to a list of goods, is a tangible piece of evidence that could be used against you at some future date. The Sicilian Mafia, renowned for their “code of silence”, had an old saying which sums this up perfectly: Never write when you can speak, and never speak when silence will do.What does this have to do with Gold and Silver? Perhaps a great deal.

First, note that the “never write it down” principle of organized crime is already known to have been employed in the largest and best known example of market rigging that has been proven to date- the London Gold Pool. The London Gold Pool operated for 7 years and only fell apart when France decided the US was printing money too fast (in relation to France) and was gaining an unfair advantage, so they withdrew and only then did the episode slowly became public knowledge. In his book “Gold Wars”, Swiss banker Ferdinand Lips wrote:

“It was decided to keep the gold pool secret at the time. Keeping with traditional practices at the BIS meetings, not a scrap of paper was initialed or even exchanged; the word of each governor was as binding as any contract”. (Lipps, Gold Wars, 2001: pg 53)

Why didn’t anyone present record the details of this agreement, so crucial that it would structure the major part of international trade for most of a decade? Because what they were conspiring to do (and succeeded in doing for seven years) was illegal. The Sicilians would have been proud.

More to the point, there is a facet of the “never write it down” procedure that is especially crucial to understand, in light of current events in the metals markets. The principle of deliberately leaving no paper trail has an added benefit for those at the top of criminal organizations. Let’s say that a mob boss orders a hit and his shooter gets caught in the act. Without any tangible evidence that he ordered the hit, from a legal standpoint it winds up merely his word against the shooter. The shooter says “He ordered me to do this” and the boss says “Prove it”. Giving orders by word of mouth thus provides an added layer of protection for those at the top of a criminal organization.

Crucially, however, it places those actually conducting the day-to-day business of crime in a very difficult position- they have no choice but to follow the orders of the powerful people in charge, but they know that they are on the hook for the crimes committed. This means that when criminal enterprise starts to fall apart or when public pressure causes politicians or law enforcement to turn up the heat, we see the underlings in such a scheme put into a no-win situation. They do not dare cross those giving the orders, but they are painfully aware that they themselves are the ones actually committing the crimes. Because the entire thing has been word of mouth from the beginning, at some point they start to realize that they do not dare turn on the powerful entities giving them their marching orders but the longer they continue, the more likely it is that they themselves will be hung out to dry if/when the scheme is revealed.

The only rational response in this situation is to quietly leave the organization if at all possible. Remove yourself from being in the position of having to commit crimes which you cannot refuse to commit, yet you have no proof that you have been ordered to commit them if the whole thing blows up.

In light of the above, consider the following:

The CFTC has been conducting an “ongoing” investigation into precious metals markets manipulation since 2008.

One year ago, two whistleblowers from inside J P Morgan (one a trader, one in management) allegedly gave very specific evidence of vigorous market manipulation by JPM, apparently detailing deliberate market-moving trades.

Despite this apparent “smoking gun” evidence, the CFTC stunned market observers last month by closing the investigation, declaring that they could not bring charges against any firm or individuals.

Now here is where it gets interesting. Isn’t it peculiar that:

CFTC commissioner Jill Sommers unexpectedly resigned, leaving her high-ranking position despite having no other job waiting for her (link). Indeed, aside from giving the occasional paid talk about Dodd-Frank at a business conference or two, she appears to be still unemployed.

Less than 10 days after the “no charges filed” announcement, CFTC Chairman Gary Gensler (whose term as chairman is up at the end of the year) very publicly turned down the Obama Administration’s offer of a second term, in a Wall Street Journal article. He will be leaving the CFTC at the end of the year(link).

Within a week of the “no charges filed” announcement, CFTC Chief of Enforcement Davd Miester unexpectedly resigned his position, again despite apparently having no firm job offer or position he was leaving for (link).

Now one could certainly argue that top people leave government agencies all the time, even three of the top six at the CFTC including the Chief of Enforcement and the Chairman. But one could also argue, given that it is now public knowledge that the CFTC has ignored direct whistleblower evidence of manipulation in the precious metals markets for more than a year prior to sinking their own investigation, this spate of resignations could certainly be more than mere coincidence. In fact, it is EXACTLY what one would expect to see when people ordered to cover-up criminal activities come to realize that the heat is being turned up, word has leaked to the public, and they have no way to prove that they were ordered from on-high to do these things.

They cannot defy the powerful people or entities who have given them their marching orders, yet the nothing written down method means that they cannot prove they were verbally ordered to do these things. They begin to fully realize how precarious their position is, and that “they told me to do this” will not get them off the hook if it all goes wrong. So the best they can do is to try and slink into the background, hoping against hope that this all goes away.

The Sicilians understood that foot-soldiers are expendable. Perhaps a few of our public servants are coming to realize this, too.

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2 thoughts on “Market Manipulation & The Sicilian Code”

Jack Lew’s policy of Omerta just got blown to pieces
This mail room clerk has shown the federal debt at $16,696,000,000,000 for 5 months. The first day the federal government opened they spent $328,000,000,000.
The national debt just jumped to $17,024,000,000,000 Bingo.

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